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A rise in inflation next year is likely to strain the spending power of households.
A rise in inflation next year is likely to strain the spending power of households.

BoE Sees Higher Inflation, Interest Rates in 2017

BoE Sees Higher Inflation, Interest Rates in 2017

Britons expect a sharp rise in inflation over the coming year following the plummet in the value of sterling after Britain’s vote to leave the European Union, and more now believe a hike in interest rates is on the way, a Bank of England survey showed.
The survey published on Friday showed average public inflation expectations over the next 12 months rose to 2.8% in November from 2.2% in the previous survey in August, investing.com reported.
Taking a five-year view, Britons expected inflation of 3.1%, slightly higher than the 3% forecast of three months earlier. Some 41% of respondents in the survey expected interest rates to rise over the next 12 months, compared with 21% in August.
The Bank of England and many private economists have said inflation is set to climb sharply in 2017.
After the EU referendum in June, sterling fell as much as 20% against the US dollar but has recovered slightly to be down around 16%.
So far, the British economy has largely weathered the initial Brexit shock better than many expected. But a rise in inflation next year is likely to strain the spending power of households who have driven the recovery in the economy since the financial crisis of 2007-09.
Britain’s inflation rate in the 12 months to October stood at 0.9% and the Bank has previously said it expects it to peak at 2.8% in early 2018. Bank of England Governor Mark Carney has said the BoE is prepared to let inflation run above its 2% target in 2017 but there were limits to tolerating the overshoot.
Meanwhile, businesses in Britain’s services sector grew at their fastest pace since January last month, a survey showed last week, and the broader economy kept up its momentum in late 2016.
The Markit/CIPS services purchasing managers’ index—a closely watched gauge of the services sector—rose to 55.2 in November from 54.5 in October, beating all the forecasts in a Reuters poll of economists.
Despite a dip in the equivalent survey of manufacturers published last week, overall the November PMIs suggest the economy as a whole will maintain the third quarter’s solid 0.5% growth rate through to the end of the year, Markit said.

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